ITO, UTTRAKHAND vs. SH. RADHA KRISHAN BHATT, UTTRAKHAND

The solitary issue that is raised in the appeal is whether the CIT(Appeals) is justified in confirming the disallowance of Rs.8,07,123/- in respect of advertisement expenses.

The assessee is a company, engaged in the business of trading in computers. The return of income was filed by the assessee on 08.10.2010 declaring total income of Rs.75,17,679/-. The assessment was completed u/s 143(3) of the Act vide order dt. 04.01.2013 computing the total income at Rs.83,24,802/-. The AO disallowed deduction of Rs.8,07,123/- being 75% of the total advertisement expenses. The assessee had incurred Rs.10,76,165/- on advertisement. The Assessing Officer was of the view that 75% of the expenses is capital in nature and disallowed the same and added back to the income of the assessee (Rs.8,07,123/-).

Aggrieved the assessee filed the appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee. Relevant observation of the CIT(A) in dismissing the appeal of the assessee reads as follows. “I have considered the grounds raised in appeal and the facts of the case as well as the submission filed by the AR of the appellant. The Assessing Officer has disallowed the claim of advertisement expenditure to the extent of 75% stating the reason that the expenditure was incurred during the month of March. Clearly the impact of advertisement was spilling over to the next financial year as well and is of enduring nature. The expenditure was onetime expense with the intention of long term benefits spilling over next financial year. The case laws relied upon by the appellant are distinguishable on facts. In view of this the disallowance of advertisement expenses is found to be in order. The ground raised in appeal is dismissed.”

The Assessee being aggrieved is in appeal before us.

The Ld.A.R. reiterated the submissions made before the income tax authorities. The Ld.D.R. present was duly heard. 7. We have heard the rival submissions and perused the material on record. Admittedly in this case the genuineness and the quantum of the advertisement expenses incurred by the assessee is not doubted. On perusal of the details of the expenses, we notice that these were expenses incurred in the normal course of business and does not partake the character of the capital expenditure. Primarily the Income tax authorities have disallowed 75% of the total advertisement expenses for the reason that the benefit of these expenses would have spilled over to the next year. These advertisement expenses are recurring expenses incurred for sales promotion. There is no enduring benefit by incurring these expenses. Hence we hold that the disallowance of Rs.8,07,123/- is not justified on the facts of the case. Accordingly we direct the AO to allow as a business deduction Rs.8,07,123/-. It is ordered accordingly.

In the result the appeal filed by the assessee is allowed. Order pronounced in the Open Court on 02nd March, 2015.